Introduction to Reciprocal Marketplaces
Most marketplaces are described using three primary characteristics: number of sides (1-sided, 2-sided, 3-sided or n-sided), geographic density and customer type (B2B, B2C, C2C). An element less frequently considered is "reciprocity". In this post we define "reciprocal marketplaces", explore their main properties and identify what is required to ensure their orderly function.
A marketplace is considered reciprocal when it functions as follows:
Reciprocal marketplaces are suitable when the following conditions hold true:
Examples of potential applications of a reciprocal marketplace can include torrent networks where users share CPU resources, advertising exchange networks, marketplaces for hourly workers, etc.
Requirements for Orderly Function
In order for reciprocal marketplaces to function properly, the marketplace enablers need to allow certain basic operations to take place.
Reciprocal marketplaces have all the benefits of traditional marketplaces, plus several more:
For the supply side, the main benefit is improved utilisation: supply-side resources that were previously "owned" by a single actor (and were thus under-utilised) can now be used by multiple demand-side actors, each with asymmetric needs relative to each other.
For the demand side, reciprocal marketplaces provide higher probability of resource availability. This holds true even if the marketplace has only two participants. Secondly, improved utilisation of the supply-side resources can lead to lower costs.
For the marketplace enablers, reciprocal marketplaces are more capital efficient as they don't need to expend resources for building up the supply side. This also means there is no "chicken or egg" problem. Lastly, reciprocal marketplaces can be self-propagating as demand-side actors have the inherent incentive to both continually add supply-side resources to the marketplace and to invite other demand-side participants with asymmetric needs relative to them.
Mitigating Adverse Incentives
Enablers of reciprocal marketplaces should be aware of potential adverse incentives among participants and counteract them by enforcing certain marketplace rules:
To receive M&A and capital raising insights, deal announcements, research reports and news from Venero Capital Advisors, register here.
Comments are closed.